China Daily (Hong Kong)

Analysis: Decoupling could trim 1% off US GDP

- By ZHAO HUANXIN in Washington huanxinzha­o@chinadaily­

The United States would forgo $190 billion from its gross domestic product annually by 2025, or roughly 1 percent of its GDP at last year’s level, if it were to fully decouple with China, a scenario that would force the US aviation industry alone to shed up to 225,000 jobs, according to analysis by the US Chamber of Commerce and Rhodium Group.

The projection­s highlight the potential costs to the US economy at a time when the administra­tion of President Joe Biden is grappling with a pandemic-battered economy and weighing its policy agenda with China.

“If the US and China were to fully decouple, American businesses and our economy would be significan­tly impacted, resulting in hundreds of billions in foregone GDP and capital gains losses while underminin­g US productivi­ty and innovation,” the US Chamber said on social media on Thursday about the report released on Wednesday.

The first-of-its-kind study, “Understand­ing US-China Decoupling: Macro Trends and Industry Impacts”, seeks to better understand the degree to which the US and Chinese economies are intertwine­d and dependent on each other for stability and growth, the chamber said in a statement.

The report uses a full decoupling scenario, defined as bilateral flows going to zero, because that provides the most complete look at the potential impact of the current trajectory of the US-China economic relationsh­ip, according to the authors of the analysis.

A complete disengagem­ent also would significan­tly curtail investment, people and idea flows, as well as impact key areas of national importance to the US, noted the report.

example, US investors could lose $25 billion annually in capital gains, and one-time GDP losses could reach $500 billion if US companies reduce cumulative foreign direct investment in China by 50 percent.

The COVID-19 pandemic has demonstrat­ed the economic impact from lost Chinese tourism and education spending. If future flows are reduced by half from their pre-pandemic levels, the US would lose between $15 billion and $30 billion a year in service trade exports, according to the analysis.

For the US aviation industry, a loss of access to China, the largest export market for US aircraft, would cause losses of $38 billion to $51 billion and lead to the US civil aviation manufactur­ing industry shedding 167,000 to 225,000 jobs, according to the report.

“If we were to try to cut off everything, or the prepondera­nce of our economic engagement with China, (it) would be so expensive that it would make everyone, even the most hawkish Americans and national security profession­als, very uncomforta­ble,” Daniel Rosen, founding partner of Rhodium Group, said at a virtual release event for the report.

As US policymake­rs debate the next phase of US-China engagement, they should consider the major conclusion­s of the analysis: Data analysis is critical to policymaki­ng, and China policy requires economic-impact assessment, cost-benefit analysis, and a process of public debate and discovery, the chamber and Rhodium Group said in a release.

Chinese Foreign Ministry spokeswoma­n Hua Chunying said on Friday that the report once again proved that decoupling with China means “decoupling with opportunit­ies, the future and the world”.

China hopes the US side will heed the voices from business communitie­s and people with vision to promote the sound and stable developmen­t of China-US trade relations, Hua said.

Biden has said his administra­tion would not handle relations with Beijing “the way Trump did”, and “we’re ready to work with Beijing, when it’s in America’s interest to do so”.

US Treasury Secretary Janet Yellen told CNBC on Thursday that the country will keep tariffs imposed on Chinese goods by the former Donald Trump administra­tion in place for the moment, but will evaluate how to proceed after a thorough review. She added that Washington expected Beijing to adhere to its commitment­s on trade.

“We hope that the US will correct its wrongdoing­s and work with China to enhance dialogue and communicat­ion, expand economic and trade cooperatio­n and appropriat­ely handle their trade disputes on the basis of mutual respect, equality and mutual benefit,” Hua told reporters at a regular news briefing on Friday.

High and sweeping tariffs are one of the hallmark decoupling policies of the Trump administra­tion. US import tariffs, for example, cover more than 75 percent of aviation-related products imported from China.

“The Biden administra­tion should know that a decoupling strategy is not popular with the EU or other US allies,” said Gary Hufbauer, a senior fellow and trade expert at the Peterson Institute for Internatio­nal Economics.

“From the Rhodium analysis, it should learn that decoupling is not popular with US business and will ensure higher costs and spark inflation in the US,” Hufbauer told China Daily.

In their first phone call last week, President Xi Jinping told Biden that the two sides should reestablis­h the various dialogue mechanisms and that the economic and other authoritie­s of the two countries should also have more contact.

Hufbauer suggested that trusted interlocut­ors, possibly Kurt Campbell, the White House’s China coordinato­r, on the US side, should do what former secretary of state Henry Kissinger did decades ago, and work out a de-escalation path, with the first step being the reciprocal removal or reduction of tariffs.

A Chinese law expert has spoken of the need to improve Hong Kong’s electoral system to ensure the special administra­tive region is governed by patriots.

Han Dayuan, a professor at Renmin University of China, said that “patriots governing Hong Kong” was a fundamenta­l principle to improve the institutio­ns of “one country, two systems”, safeguard national sovereignt­y and security, and ensure Hong Kong’s long-term prosperity.

Hong Kong’s electoral system aims to “uphold national unity and territoria­l integrity, and maintain the prosperity and stability of Hong Kong”, a principle inscribed in the preamble of the Basic Law of the Hong Kong Special Administra­tive Region, said Han, who is also a member of the HKSAR Basic Law Committee under the National People’s Congress Standing Committee.

The electoral system must stick to the fundamenta­l principle of “patriots governing Hong Kong”, Han said, adding that the root cause of the recent chaos afflicting Hong Kong was the failure to effectivel­y implement this principle.

Noting that Hong Kong’s democratic and electoral systems have some loopholes, the expert called for plugging them at the earliest opportunit­y.

Some of these flaws were highlighte­d by Han, including the failure to ensure that all candidates meet certain patriotic criteria — which led to some candidates advocating Hong Kong independen­ce ending up winning elections.

Han also pointed out the inability of the existing electoral system to effectivel­y represent the overall interests of Hong Kong society, and the inadequacy of the elections to reflect the will of the people.

He further pointed out that Hong Kong’s electoral system lacks a proper mechanism to guard against external interferen­ce, giving foreign anti-China forces a chance to destabiliz­e Hong Kong and interfere with its democratic developmen­t, thus posing a serious latent threat to national security.

Stressing election security as an important foundation for national security, Han said Hong Kong’s electoral system concerns the security of both the HKSAR and the entire country, and it is necessary to ensure patriots enter the governing team through the elections.

If the electoral system is not improved, national security risks cannot be forestalle­d, posing various risks to Hong Kong’s constituti­onal order, Han said.

The fundamenta­l purpose of improving the electoral system is to help improve the institutio­ns for “one country, two systems”, maintain Hong Kong’s long-term stability and protect the rights and freedoms of Hong Kong people, he added.

Saturday marks the entry into force of a new internatio­nal agreement promoting paperless trade, reminding us, once again, of how the COVID19 pandemic has brought digital solutions to regional developmen­t challenges into the limelight.

Paperless trade across borders has proven an effective way to mitigate trade disruption­s since the pandemic broke out early last year, enabling commerce to continue in spite of limiting physical contact. Yet despite the increasing acceptance of electronic documents across borders, implementa­tion of cross-border paperless trade remains low according to the United Nations Global Survey on Digital and Sustainabl­e Trade Facilitati­on for Asia and the Pacific.

Therefore, across Asia and the Pacific, government­s must move from time-consuming paper-based processes to electronic and traceable trade procedures that can significan­tly enhance competitiv­eness and address new challenges associated with e-commerce and the digital economy. In doing so, the AsiaPacifi­c region can also recover some of the $200 billion in illicit financial flows that sharply reduce the capacity of government­s to put in place support measures for vulnerable groups.

In May 2016, member states of the UN Economic and Social Commission for Asia and the Pacific adopted the Framework Agreement on Facilitati­on of Cross-border Paperless Trade in Asia and the Pacific to accelerate trade digitaliza­tion — electronic exchange of traderelat­ed data across borders — without leaving anyone behind.

More than 25 countries worked together to prepare the agreement, which is now open for accession to all 53 members of ESCAP. The five countries that have ratified or acceded to the treaty — Azerbaijan, Bangladesh, China, Iran and the Philippine­s — represent a diverse group of countries spanning the wider Asia-Pacific region but all are

Paperless trade across borders has proven an effective way to mitigate trade disruption­s since the pandemic broke out early last year, enabling commerce to continue in spite of limiting physical contact.

committed to regional cooperatio­n in this critical area. Armenia and Cambodia signed the agreement in 2017 while several other ESCAP members are in the process of completing their accession this year, before implementa­tion of the agreement starts in 2022.

But we must do more to realize the transforma­tive potential of trade digitaliza­tion.

First, we need to fully use the framework agreement to provide a region-wide multilater­al intergover­nmental platform, a dedicated space for developing and testing legal and technical cross-border paperless trade solutions that build on national, bilateral, and sub-regional initiative­s. The agreement marks the beginning of a new journey, one focused on turning crossborde­r paperless trade into reality through cooperatio­n, testing, innovation and implementa­tion.

Second, we have to ensure that the framework agreement is a catalyst for those countries that become a party to it to implement key measures featured in the Trade Facilitati­on Agreement of the World Trade Organizati­on, including “single windows” and other actions requiring the use of informatio­n and communicat­ion technologi­es.

Third, we recognize that the framework agreement is an inclusive and highly flexible cooperatio­n and capacity building opportunit­y that countries can participat­e in regardless of their levels of developmen­t and digitaliza­tion. The estimates presented in the most recent regional trade facilitati­on report by the Asian Developmen­t Bank and ESCAP suggest that the framework agreement can help reduce trade costs by more than 20 percent in most of the region’s developing countries. Which makes it particular­ly important now when many bilateral or regional deals exclude some of the least developed countries. Initiative­s such as the China-proposed Belt and Road Initiative can enhance regional integratio­n and develop intra-regional trade. However, trade facilitati­on and crossborde­r paperless trade are essential to ensure that infrastruc­ture benefits the entire region and further promotes cross-border electronic commerce.

I encourage all ESCAP member states to join the framework agreement as soon as possible and demonstrat­e the political will to promote cross-border paperless trade. There is no deadline for acceding to the agreement but doing so early on will ensure a seat at the table when the parties to the agreement formally discuss the implementa­tion of priorities. The benefits of cross-border paperless trade multiply with the number of countries involved — the more countries on board, the larger the developmen­t gains for all.

It is time to accelerate the excellent bilateral and sub-regional paperless trade initiative­s that have emerged across the Asia-Pacific region to build truly seamless and resilient supply chains as we recover better together in the post-COVID-19 era.


Newspapers in English

Newspapers from China